On 4 June 2013, the FCA published its final rules banning the promotion of Unregulated Collective Investment Schemes (UCIS) and various similar products to most retail investors. Collectively referred to as Non-Mainstream Pooled Investments (NMPIs), the products subject to the restriction are:
- units in qualified investor schemes;
- units in UCIS;
- securities issued by SPVs which pool investment in non-share, non-bond assets; and
- traded life policy investments.
The regulator considers that such products are unsuitable for inexperienced investors, so should only be promoted to sophisticated investors who understand the risks (which, recently, have included total failure).
The timing of the ban is opportune because the FCA chose the following day to publish the final notice of a financial penalty against an investment firm for failings linked to traded life policy investments (otherwise known as death bonds). Sesame Limited was fined over £6m for failings in the oversight of its appointed representatives (ARs). Since ARs are not themselves authorised, but derive an effective authorisation from a Principal, the Principal must account to the regulator for any breaches by its ARs.
The breaches in question involved incorrect and unsuitable advice leading to mis-selling of investments in death bonds provided by Keydata Investment Services Limited. Despite the fact that Sesame informed its ARs that the products carried “a considerable amount of risk”, this information was not passed on to customers. However, the majority of the fine (almost £5.8m) was imposed because of systems and controls weaknesses, of which the Keydata mis-selling was symptomatic. The regulator expressed concern that the firm had failed to monitor and control its network of 1,220 ARs, treating them, rather than the final consumer, as its customers.
The decision should serve as a warning to other financial services networks to ensure that their ARs are subject to sufficient scrutiny. It may also, given the timing, have been a contributory factor in the FCA’s decision to ban financial promotion of death bonds to retail customers.